Tokenization Update: How Digital Wallets are Performing at Checkout

Tokenization Update: How Digital Wallets are Performing at Checkout

Apple Pay hit the market in 2014, changing the payments industry forever. In fact, while consumers had originally been slow to embrace tokenized digital wallets, the market continues to steadily grow, and industry titans such as Google, Samsung and Microsoft have since jumped in with both feet.

So just how are tokenized wallets fairing among consumers today, how has the market changed, and what does the future hold?

According to research firm eMarketer, 36.2 million people will use smartphones instead of cash or plastic to pay when they visit a store this year – representing a 60.5 percent annual increase. By 2018, the firm expects more than one in four U.S. smartphone owners to use mobile payments.

Consider also that 29 percent of U.S. adults recently surveyed for Computer Services, Inc. said they would be willing to adopt the technology within the next six months. J.D. Power’s 2016 U.S. credit card satisfaction study reveals that, among younger respondents – those under 40 and earning at least $80,000 a year – 43 percent are using a mobile payment app today.

“Millennials are leading the way in terms of embracing this technology,” said Amy MacMullen, Senior Product Manager for CO-OP Financial Services. “For consumers still sitting on the sidelines, what we have found is that four main factors continue to hold them back – limited merchant acceptance, concerns over both security and privacy, and, in many cases, a lack of awareness about the technology.”

A Profile of Early Adopters

According to MacMullen, consumers who use digital wallet technology today typically load multiple cards into the wallet. She adds that many users of Samsung Pay also have Android Pay enabled on their devices.

As to where these early adopters are shopping with their digital wallets, MacMullen points to groceries and restaurants as the destination of choice.

“Acceptance is still a challenge because NFC technology is not available at every merchant site,” she said. “Even where NFC readers are enabled, the cashiers may not have been trained yet on how they work. So consumers and merchants are on a learning curve together.”

She also notes that there is still confusion in the marketplace over digital wallet security.

“While tokenization has proven to be every bit as secure as EMV, many consumers don’t realize this,” said MacMullen. “As the technology becomes more common at the point of sale, we expect this sentiment to change.”

Digital Wallets and Rewards

While each of the major digital wallets supports rewards and gift cards today, there are scenarios in which redemption can be problematic.

“In order for an NFC reader to process a rewards card’s barcode information, the program and account linked to that barcode must be supported by the digital wallet provider,” said MacMullen. “So most of the issues we see at checkout occur when older rewards cards are scanned. In these cases, a cashier can always key in the account number displayed in the app.”

While MacMullen emphasizes that the big three “Pays” continue to evolve and enhance the user experience, top brands such as Starbucks and Kohls already have the art of mobile payments down to a science.

“I can walk into any Starbucks today, and several personalized offers will be instantly displayed in my app,” she said. “And the entire in-store experience, from ordering and paying to earning and redeeming rewards, is effortless – which is why the Starbucks’ app is so widely used.”

Kohls Pay, MacMullen adds, delivers an equally engaging mobile experience to its credit cardholders – so engaging, in fact, that enrollment in the new mobile app grew by more than 70 percent, week over week, in its first month on the market.

“When shoppers use Kohls Pay at checkout, they automatically earn Kohls Cash for future use, can choose from a long list of promotions, discounts and rebates, and have instant access for their gift cards as well,” she said. “All this functionality is rolled into the app. Plus, the company’s very savvy marketing team sends Kohls Pay customers reminders about their upcoming offers so they never miss an opportunity to save – and shop.”

All of which, MacMullen says, gives insight into how digital wallet technology is advancing.

“In the future, consumers will use digital wallets to access a full breadth of products and programs, ranging from payment cards and loyalty points to library cards, gym memberships, and even airline boarding passes and movie tickets,” she said. “And as more affordable mobile devices enter the market with support for the technology, consumer adoption will continue to grow. There is still an exclusivity about digital wallets today – but that will soon change.”